Considering two mutually exclusive projects

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You are considering two mutually exclusive projects. The A Project has an internal rate of return (IRR) of 12 percent, while B Project has an IRR of 14 percent. The two projects have very similar risk. Both projects have the same NPV when the cost of capital is 7 percent. Assume each project has an initial cash investment followed by a series of cash returns.

The following are possible statements that can be made about this information:

I. If the cost of capital is 13 percent, B's NPV will be higher than A's NPV.

II. If the cost of capital is 9 percent, B's NPV will be higher than A's NPV.

III. By increasing the cost of capital, B's NPV will decrease more slowly than A's NPV.

IV. B's initial cash investment is less than A's initial cash investment.

Which of these statements are correct?

Reference no: EM132509194

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